Crest Nicholson Holdings PLC

Crest Nicholson Holdings PLC (LON: CRST) is a FTSE 250 listed residential housebuilder, domiciled in England and Wales.

The interim dividend will be paid on 14 October 2021 to shareholders on the register on 24 September 2021.

Rationale for Valuation – BUY at GBX 357.60

• British house prices jumped to nearly 15-year high, ahead of the full tax expiry at the end of September 2021. The price shall continue to rise due to shortage of homes, demand for bigger houses and low-interest rates scenario.
• The Bank of England decided to keep interest rates steady at 0.1%, which shall benefit homeowners.
• The UK house prices are forecasted to increase up to 3.5% between 2022 to 2024 as the demand for more space is likely to drive house prices.
• Adjacently, the Group strengthened the balance sheet and turned into a net cash position of £130.4 million at the end of H1 FY21 (H1 FY20: net debt of £93.3 million).
• CRST reported strong trading performance in H1 FY21, while its strategy remained on track to accelerate growth.
• Moreover, the Group has a robust order book to make good progress in FY21. It has also upgraded the FY21 earnings guidance.
• From a technical standpoint, 14-day RSI (~29.04) is around the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bollinger Bands.
• On a forward 12-month basis, valuation metrics – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book are quite undervalued against the Homebuilding & Construction Supplies industry.

Key Risks

• The UK Construction Purchasing Managers' Index was impacted by the staff shortages, rising prices and supply chain disruption, and fell to 52.6 in September 2021 from 55.2 in August 2021.
• Evergrande failed to pay interest last week due on US$2 billion-dollar bond maturing in March 2022. As Evergarnde is running short of cash, its debt default is posing systematic risk to the World’s financial system.
• As the government started to taper the stamp duty holiday from the June 2021 end, house prices have fallen for the first time in 2021.
• Brexit and resurgence in Covid-19 cases are causing a huge impact on the construction supply chain. Such material shortage can delay projects and cap the expected growth prospects.

Interim Results (for the six months ended 30 April 2021, as on 24 June 2021)           

 (Source: Company Website)

• During H1 FY21, revenue surged to £324.5 million (H1 FY20: £240.0 million), following the 1,017 home completions against 775 completions in H1 FY20.
• The sales per outlet week rate remained strong at 0.69 (H1 FY20: 0.46).
• As of 18 June 2021, forward sales stood at 2,771 units with Gross Development Value of £691.8 million.
• CRST declared an interim dividend of 4.1 pence per share, reflecting confidence in the outlook.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

CRST continued make good progress against all its strategic priorities against the backdrop of the ongoing pandemic. The market conditions have been favourable and consistent. On 14 May 2021, Crest Nicholson Holdings agreed to sell 50% equitable interest in Longcross Studio and expected the receipt of approximately £45 million cash consideration. In terms of guidance, the adjusted profit before tax in FY21 is expected to be at least £100.0 million as the Company has accelerated the margin recovery.

Adjacently, consumer confidence is also improving with a shrink in the UK employment rate, while the housing market fundamentals continued to remain positive. The stock made a 52-week high and low of GBX 469.00 and GBX 208.44, respectively.

Based on the strong trading performance, upgraded guidance, favourable market dynamics, and support from the valuation as done using the above method, we have given a “BUY” stance on Crest Nicholson Holdings Group PLC at the current market price of GBX 357.60 (as on 8 October 2021, 8:30 AM GMT+1), with lower double-digit upside potential based 13.13x Price/Earnings (approx.) on FY21E Earnings Per Share (approx.). 

*All forecasted figures and Peer Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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